23 August 2010

No, They Are Cruel People*

I enjoy reading Felix Salmon, and I generally agree with him, but a few days ago, he had a high level and sort of (no names) off the record briefing senior Treasury Department officials, including Timmy, and they revealed that the failure that is HAMP is actually a success because by stringing desperate home owners along, they managed to milk a few more mortgage payments, and delay foreclosures for a while:
Treasury told Waldman — and told my group of bloggers, too — that HAMP, even if it was a failure, was a success. It might not have helped much in terms of its ostensible stated aim of permanently modifying millions of home loans. But it did help in at least three other ways: it gave temporary tax and payment relief to millions of homeowners; it massively reduced the rate at which homeowners in default were being foreclosed on; and, in the words of Waldman, “it helped banks muddle through what might have been a fatal shock”.
We had to save the banks, so if we destroyed a few lives, it was worth it. This is contemptible.

Maybe Andrew Breitbart should cover this, that would get Geithner fired, because Obama trembles at Breitbart's fury.

Truth be told though, the definitive account is by Steve Waldman, and his account of this exchange is even more damning:
The conversation next turned to housing and HAMP. On HAMP, officials were surprisingly candid. The program has gotten a lot of bad press in terms of its Kafka-esque qualification process and its limited success in generating mortgage modifications under which families become able and willing to pay their debt. Officials pointed out that what may have been an agonizing process for individuals was a useful palliative for the system as a whole. Even if most HAMP applicants ultimately default, the program prevented an outbreak of foreclosures exactly when the system could have handled it least. There were murmurs among the bloggers of “extend and pretend”, but I don’t think that’s quite right. This was extend-and-don’t-even-bother-to-pretend. The program was successful in the sense that it kept the patient alive until it had begun to heal. And the patient of this metaphor was not a struggling homeowner, but the financial system, a.k.a. the banks. Policymakers openly judged HAMP to be a qualified success because it helped banks muddle through what might have been a fatal shock. I believe these policymakers conflate, in full sincerity, incumbent financial institutions with “the system”, “the economy”, and “ordinary Americans”. Treasury officials are not cruel people. I’m sure they would have preferred if the program had worked out better for homeowners as well. But they have larger concerns, and from their perspective, HAMP has helped to address those.
(emphasis mine)

I think that he is wrong. They are cruel people, and they are evil people, and they know the evil that they do, but they think that the preservation of Wall Street, and its excessive bonuses to be worth perpetrating a fraud on desperate families grasping at straws.

These people were drowning, and they knowingly threw them anvils.

*That is what Atrios said.


Jay Walker said...

I do not think you really understand the damage that could have been done, the untold lives damaged, just as they were in the real Great Depression. To get some sense of that, you can read Steinbecks, Grapes of Wrath, or Ten Lost Years (true stories of depression-era folk struggling along). Attempting to lessen that effect, in almost any way, is worth the effort, despite the fact that some pennies from heaven fell back onto the same people who created this mess in the first place.

Jay Walker
The Confused Capitalist
The Agitated Ecoist
(google either)

Matthew G. Saroff said...

I think that the damage that has been done is far worse.

Whether you are talking about the Great Depression, or the Long Depression, the case is clear:  Accomodating lenders extends the pain and the downturn.

What turned around the Long Depression was the development of cyanide gold extraction, which allowed an expansion of the money supply, and a similar expansion in the money supply under Roosevelt, along with fiscal stimulus/new deal.

They perpetrated a fraud, allowed banks to violate even those mild rules that they mandated for the program, and actively deceived borrowers.

This is not right, and it is not an effective policy, because all it does is create another implied bailout which encourages the bankers to f%$# thing up again.

This was all about the bankers in the treasury deciding that it was a good thing to sacrifice ordinary families to their banker friends, because the rest of us do not count.

They were wrong on the morality, and wrong on the efficacy of their course of action.

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